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Prospects Daily: EU seals a seven-year budget package, China reports inflation moderation and strong export growth

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Financial Markets…Global corporate bond sales dropped to about $48 billion in the first week of February, the lowest level since the first week of 2013 and less than half of $97.7 billion sold in the same period in 2012. This drop was due to the rising borrowing costs, which dented investor demand. Yields on global corporate bonds have been rising sharply since late January after dropping to their record low levels of 3.24% toward the end of 2012.

The Japanese yen rose 1.4% against the dollar to 92.32 after climbing 1.6% in the earlier trading - the largest advance since March 2011. This reflected market reaction to the statement of the Japanese finance minister about the pace of the yen depreciation in the recent months, which according to his statement has been stronger than the government had expected. Japan’s currency also gained 1.5% versus the euro strengthening to 123.63.

Spanish and Italian bonds advanced on Friday, with their benchmark 10-year yields falling 8 basis points to 5.34% and 4 bps to 4.55% respectively, as the European Central Bank pledged to maintain accommodative monetary policy, boosting demand for the region’s high-yielding government securities. Irish 5-year bond yield also dropped 11 bps to 2.8%, the lowest level since October 2005.

High-income EconomiesEU leaders agreed a seven-year budget after a session in Brussels lasting more than 24 hours.

posted a current account deficit of 264.1 billion yen in December following a 222.4 billion yen deficit in November. The trade balance deficit narrowed to 567.6 billion yen in December, following a shortfall of 847.5 billion yen in November. On a monthly basis exports increased to 5,067.8 billion yen in December compared to 4,778.8 billion yen posted in November. On an annual basis, exports declined by 6.9% (y/y) in December. Imports also grew insignificantly to 5,635.4 billion yen in December from 5,626.3 billion yen in November. Both current and financial accounts each posted 9 billion yen surpluses. For the entire 2012, the current account surplus was 4,703.6 billion yen – less than half of the surplus of 9,550.7 billion yen recorded in 2011. The trade deficit widened more than threefold to 5,805.1 billion yen from a 1,616.5 billion yen shortfall in 2011.

In the U.S., trade deficit narrowed to $38.5 billion in December from $48.6 billion in November reflecting a 2.1% increase in the value of exports, particularly industrial supplies and materials, to $186.4 billion in December from $182.5 billion in November. Trade deficit with China narrowed to $24.5 billion in December from $29.0 billion in November. December trade deficit was the smallest U.S. trade deficit since the $37.1 billion recorded in January 2010. The value of import, particularly imports of industrial supplies and materials, declined by 2.7% to $224.9 billion in December from $231.1 billion in November.

Developing EconomiesChina’s inflation moderated in January with consumer price index rising 2% (y/y), slower than a 2.5% increase recorded in December when the chilly weather conditions affected transportation and boosted prices of fresh vegetables. The producer price index, a measure of wholesale prices, dropped 1.6% (y/y) in January.

exports rose 25% (y/y), the fastest pace since April 2011 and up from 14.1% (y/y) in December. Imports increased 28.8% (y/y), more than four-times of their December’s 6% (y/y) rise. The boom in imports trimmed China’s trade surplus to $29.2bn in January, from $31.6bn a month earlier.

industrial production grew at a slower pace of 3.7% (y/y) in December 2012, compared to the 7.1% (y/y) in November. On a seasonally adjusted basis, the IP in December 2012 contracted by 2.3% (m/m) due to the decreases in manufacturing and mining.

Turkey’s industrial production contracted by 3.8% (y/y) in December, compared to the growth of 11.3% (y/y) in November.